Teenager barters phone for a Porsche convertible

Tom, I didn't mean to be so subtle. I was criticizing Stussy's logic and his lack of citations supporting his conclusion. I know what the rules are for both inventory and investments.

The fact that he used some of them personally (that is, not in a trade or business) makes those, at least, personal use items. If I buy a book, read it, and then trade it for another book, does that make the one I bought inventory?

Seth

So if I'm bartering around, and I have a tv set, and I choose not to barter it for the first armchair I'm offered but to wait until someone offers me a more comfortable one, that somehow affects the status of my ownership as personal vs. inventory?

Seth

That doesn't work; in fact, it can create a logic loop. Consider a hobby with $1000 general expenses, but as part of it taxpayer buys stuff for $1800 and sells it for $2300. The whole process is because it's fun; but if it's a business (due to profit), then the $1000 becomes deductible, and it's a loss, hence it's a hobby, the $1000 isn't deductible, . . .

Seth

I agree with your thinking in general here, but just because something results in a loss does not make it a hobby.

If you buy and sell books frequently then it's a business. How much is frequently? I'd say more than $750 a month in profits. Because $750 * 12 is about equal to the standard deduction for single filers plus 1 exemption.

Wow, where did that come from? I would think one should consider the amount of assets of the taxpayer. Joe Gotrocks making $750 a month from his stock investments doesn't seem like a business to me.

========================================= MODERATOR'S COMMENT: OK, this thread has been going on quite a while. It seems all substantial data has been presented. It's time to consider it to be closed.

You need to read more carefully. The issue is the intent when he acquired the widget, not (normally) some time after that.

I agree. But in his hypothetical example, the activity was engaged in because it's fun, and the taxpayer had no specific intention to make a profit.

In logic, the converse of a statement is not implied by that statement.

Seth

I acquired the tv set with the intent to barter it away for a comfy chair, but I turned down the first 3 offers I got. So what? My point is that "sell it at the first opportunity" is irrelevant. "Buy to use" vs. "buy to sell at a profit" is the key distinction, I think.

Seth

Frequently is a count of times per year, not a dollar amount. If I wanted to sell some books from my collection, I could easily get $10,000/year over my cost (for a few years, at least) selling about 4 books a year. Would that make it a business? If I sold one painting for $20,000 more than I paid for it, that would be capital gain (of a collectible, but that only affects the tax rate), not a business.

Why would that be relevant?

Seth

You're right, I agree a ruling should be based on frequency.

Was just trying to quantify my ideas. I prefer numbers to adjectives, because adjectives are always subject to judicial interpretation or over-interpretation.

Many states have laws with regard to frequency vs. sales tax applicability. Would you consider that as applying here too?

Yes. For example CA law says if you hold more than 3 garage sales a year, then you have to get a sales tax permit.

No. If I sold 4 books (in different months), most states would consider that sufficient for sales taxes, while I wouldn't consider it a business.

Besides, some states don't have sales taxes, and others differ on how often sales must take place in order for someone to be required to collect them. Shouldn't rules for Federal Income Tax not vary by state?

Seth